TRADE: Micron, China Mobile Muddy US-China Trade Tensions

Bottom line: A court order barring Micron
Technology from China and Donald Trump's attempts to keep China
Mobile out of the US reflect blurring lines between business and
politics in heightening US-China trade tensions.

Two new headlines are showing
how trade tensions between the US and China are spilling over into
the high-tech realm, while also reflecting a certain amount of
confusion and twisting of the facts. Leading the somewhat
misleading headlines is an item that has U.S. memory chip
giant Micron
(Nasdaq: MU) suddenly being shut
out of China for a number of its products due to a patent dispute.
The other headline has Donald Trump saying that leading Chinese
telco China Mobile (HKEx: 941; NYSE: CHL) shouldn't be allowed to
offer services in the US due to national security
concerns.

The Micron story is being spun by some media as having a
US-China trade tensions angle, when really that's not the case and
it's just a typical patent dispute. The same could be said for the
much larger case involving a US ban on telecoms equipment maker
ZTE (HKEx: 763; Shenzhen: 000063), which is being
spun as part of US-China trade tensions, even though ZTE is being
punished for violating much older US sanctions against sales to
Iran. China Mobile, on the other hand, is clearly a Trump pet
project and does reflect his protectionist tendencies.

The bottom line in all this is that the US-China trade tensions
are having the effect of blurring the lines between business and
politics by politicizing a number of disputes that really aren't
political. While that's good in terms of keeping business and
politics separate, it's less positive in terms of how it will shape
public perception. Put simply, many cases like ZTE and now Micron
are likely to get lumped into people's minds as part of US-China
frictions, needlessly heightening the sense of tension between
these two economic titans.

All that said, let's zoom in on the latest US-China frictions
with a look at Micron, which has been banned by a court order from
selling 26 types of its products in China, mostly related to its
core memory chips. (English
article) This particular order comes from a court in south
China's Fuzhou province, and is the result of a patent infringement
lawsuit bought by UMC (Taipei: 2303), Taiwan's
second largest chipmaker.

Reports point out that China is a key market for Micron,
accounting for over half of its $20 billion in sales last year.
Accordingly, investors weren't too happy with the news, shaving 5.5
percent off Micron's stock the day the news first surfaced. The
reports point out the case dates back at least two years, and
actually began with a lawsuit by Micron in the US over allegations
of intellectual property theft by UMC engineers.

Improved IP Protection

If nothing else, this particular order does highlight the fact
that Chinese courts are taking intellectual property (IP)
violations seriously, which is always a good thing. It's relatively
rare to see the courts provide this kind of interim injunctive
relief in China, with the result that the IP in question is often
obsolete by the time the courts make decisions in such cases. So
from that perspective, one could see this case as a positive
development for IP protection in China, even if it's bad for
Micron.

Next there's the China Mobile case, which is more obviously
directly related to the US-China trade tensions. That case has the
Trump administration recommending the US telecoms regulator block
China Mobile's application to offer services in the US due to
national security concerns. (English
article) The application dates back to 2011, so it's not really
clear why it's taken so long to consider.

One report points out that this will have little impact on China
Mobile, which has been quite slow to move beyond its own borders.
Smaller rival China
Telecom (HKEx: 728; NYSE: CHA) has been a bit more
aggressive, launching service in the UK in 2012. But even then the
service was mostly targeted at Chinese people living in the
country, and I suspect China Mobile was probably aiming to offer a
similar product in the US.

From my perspective, I really don't have much sympathy for China
Mobile in this instance. China is notorious for its paranoia about
letting any foreign telco or telecoms service provider into its own
market, with the result that foreigners can't offer any services
there. This is the kind of unlevel playing field that Trump often
complains about, and China should really be prepared to open its
own market for such services if it wants to complain about
exclusion of its own telcos from other people's markets.